[Federal Register Volume 91, Number 160 (Thursday, August 20, 2026)]
[Proposed Rules]
[Pages 53741-53784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-17042]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 91, No. 160 / Thursday, August 20, 2026 /
Proposed Rules
[[Page 53741]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AI67
Small Business Size Standards
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or the Agency) is
proposing new size standards for 338 industry groups and industries.
The new size standards are designed to better reflect the nature of the
markets in which small businesses compete. SBA seeks comments on its
proposed changes to size standards.
DATES: SBA must receive comments on this proposed rule on or before
September 21, 2026.
ADDRESSES: You may submit comments identified by RIN 3245-AI67 or
Docket No. SBA-2026-0199 by one of the following methods:
(1) Federal eRulemaking Portal: www.regulations.gov. Follow the
instructions for submitting comments; or
(2) Mail/Hand Delivery/Courier: Ryan Lambert, Associate
Administrator, Office of Government Contracting and Business
Development, 409 Third Street SW, Mail Code 6530, Washington, DC 20416.
SBA will post all comments on this proposed rule on
www.regulations.gov. If you wish to submit confidential business
information (CBI) as defined in the User Notice at www.regulations.gov,
you must submit such information to [email protected] with ``RIN 3245-
AI67'' in the subject heading. Highlight the information that you
consider to be CBI, and explain why you believe SBA should hold this
information as confidential. SBA will review your information and
determine whether it will make the information public. In accordance
with 5 U.S.C. 553(b)(4), a summary of this rule may be found on
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Ryan Lambert, Associate Administrator,
Office of Government Contracting and Business Development,
[email protected].
SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small
business assistance, SBA establishes small business size definitions
(usually referred to as ``size standards'') for private sector
industries in the United States pursuant to the Administrator's
authority in the Small Business Act, 15 U.S.C. 631 et seq. (``the
Act''). See 15 U.S.C. 632(a)(2)(A).
In conjunction with this Notice of Proposed Rulemaking, SBA is
publishing a white paper on an updated methodology for calculating
small business size standards for public comment (``Revised
Methodology''). This Revised Methodology was used to calculate the size
standards proposed herein and all background, analysis, and discussion
in the Methodology are incorporated herein.
Briefly, SBA's proposed size standards methodology examines the
structural characteristics of an industry or industry group as a basis
to assess differences and the overall degree of competitiveness within
the industry group or industry. To ensure its size standards offer
complete coverage of all areas of the economy where small businesses
may compete, SBA uses the most recent revision of the North American
Industry Classification System (NAICS) as a method to group similar
firms into markets. As used herein, SBA considers an industry to be a
5- or 6-digit NAICS code and an industry group to be a 4-digit NAICS
code.
As described more fully in SBA's proposed size standards
methodology accompanying this Notice of Proposed Rulemaking (NPRM),
market structure is examined by analyzing its average market size. In
turn, average market size can be broken down into three components. The
first component is the total size of all participants in the industry
group or industry, including for-profit businesses, not-for-profit
entities, and government owned entities, which is referred to as the
national industry size. The second component is the number of distinct
geographic markets in which competition takes place. The third
component is an adjustment for imports and exports to account for
international competition faced by domestic firms.
Industry groups or industries with smaller average market sizes are
given smaller size standards since less scale is required in those
industries for a firm to be dominant. By contrast, industry groups or
industries with larger average market sizes are given larger size
standards as a greater level of scale is required for a firm to be
dominant. When SBA's proposed or revised size standards deviate from
the analytical results based on these factors, the Agency provides a
detailed explanation.
In addition to reviewing all size standards and adjusting them as
necessary to reflect market conditions, SBA's Methodology adjusts all
receipt based standards for inflation and productivity growth. SBA most
recently adjusted size standards for inflation on November 17, 2022,
but has never before adjusted for productivity growth in the economy.
A. Background
In September 2010, Congress passed the Small Business Jobs Act
(Pub. L. 111-240, 124 Stat. 2504 (September 27, 2010)) (Jobs Act)
requiring SBA to review all size standards every five years and make
necessary adjustments to reflect current industry and market
conditions. Section 1831 of the National Defense Authorization Act for
Fiscal Year 2017 (Pub. L. 114-328; December 23, 2016) (NDAA 2017)
directed SBA to establish size standards for all agricultural
enterprises in the same manner as for other industries and to include
them in the five-year rolling review procedures established under
section 1344(a) of the Jobs Act.
In accordance with the Jobs Act, SBA completed the first five-year
review of all size standards (except size standards for agricultural
enterprises) in 2016 \1\ and the second five-year review of size
standards (including size standards for agricultural enterprises in
accordance with NDAA 2017) in 2023,\2\ and made
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adjustments to size standards for a number of industries.
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\1\ See ``A Report on the First Five-Year Comprehensive Review
of Small Business Size Standards Under the Small Business Jobs Act
of 2010'' available at https://www.sba.gov/sites/default/files/2023-09/Report%20on%20the%20First%205-Year%20Comprehensive%20Size%20Standards%20Review-508F.pdf.
\2\ See ``A Report on the Second Five-Year Comprehensive Review
of Small Business Size Standards Under the Small Business Jobs Act
of 2010'', available at https://www.sba.gov/sites/default/files/2023-07/SBA%27s%20Report%20on%20the%20Second%205%20Year%20Review%20of%20Size%20Standards_Final.pdf.
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During the second five-year review of size standards under the Jobs
Act, SBA reviewed a total of 1,037 size standards and increased the
size standards for 436 specific industries. The analysis of available
data at that time suggested that a total of 492 size standards might be
decreased, but in response to ongoing economic impacts as a result of
the COVID-19 pandemic, SBA decided to retain those size standards at
the current levels.\3\
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\3\ See Small Business Size Standards: Agriculture, Forestry,
Fishing and Hunting, Mining, Quarrying, and Oil and Gas Extraction,
Utilities, Construction (87 FR 18607, March 31, 2022), Small
Business Size Standards: Transportation and Warehousing,
Information, Finance and Insurance, Real Estate and Rental and
Leasing (87 FR 18627, March 31, 2022), Small Business Size
Standards: Professional, Scientific and Technical Services,
Management of Companies and Enterprises, Administrative and Support
and Waste Management and Remediation Services (87 FR 18665, March
31, 2022), Small Business Size Standards: Education Services, Health
Care and Social Assistance, Arts, Entertainment and Recreation,
Accommodation and Food Services, Other Services (87 FR 18646, March
31, 2022), and Small Business Size Standards: Wholesale Trade and
Retail Trade (87 FR 35869, June 14, 2022, Small Business Size
Standards: Manufacturing and Industries With Employee-Based Size
Standards in Other Sectors Except Wholesale Trade and Retail Trade)
(88 FR 9970).
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Currently, there are 102 different size standards levels, covering
978 NAICS industries and 18 subindustries (commonly known as
``exceptions'' in SBA's table of size standards). Seventy-three of
these size levels are based on average annual receipts covering 496
industries and 13 subindustries (``exceptions''), 27 are based on
average number of employees covering 477 industries and five
subindustries (``exceptions''), one is based on refining capacity
covering one industry, and one is based on average assets covering four
industries.
SBA also adjusts its monetary based size standards for inflation at
least once every five years. An interim final rule on SBA's latest
inflation adjustment to size standards, effective December 19, 2022,
was published in the Federal Register on November 17, 2022 (87 FR
69118), which SBA finalized on July 19, 2023, adopting the November
2022 interim rule (88 FR 46048). SBA also updates its size standards
every five years to adopt the Office of Management and Budget's (OMB)
quinquennial NAICS revisions to its table of small business size
standards. Effective October 1, 2022, SBA adopted the OMB's 2022 NAICS
revisions to its size standards (87 FR 59240, September 29, 2022).
On September 12, 2024, SBA issued a revised ``Size Standards
Methodology'' (2024 Methodology), available at www.sba.gov/size, for
establishing, reviewing, or modifying SBA existing size standards. In
the paper, SBA examined the structural characteristics of an industry
as a basis to assess industry differences and the overall degree of
competitiveness of an industry and of firms within the industry.
Industry structure was examined by analyzing four primary factors--
average firm size, degree of competition within an industry, start-up
costs and entry barriers, and distribution of firms by size. To assess
the ability of small businesses to compete for Federal contracting
opportunities under the current size standards, as the fifth primary
factor, SBA also examined, for each industry averaging $20 million or
more in average annual Federal contract dollars, the Federal
contracting factor in terms of two disparity ratios. The first
disparity ratio measured the small business share of total contracts
relative to the small business share of the total population of firms
that are willing, ready, and able to bid on and perform Federal
contracts. The second disparity ratio represented the small business
share of Federal contract dollars relative to the small business share
in total industry's receipts. When warranted, SBA also considered other
secondary factors that are relevant to the industries and the interests
of small businesses, including the impacts of size standards changes on
small businesses. These factors, while often associated with a firm's
dominance in its field of operation, did not directly relate and in
some cases led size standards astray. For example, the small size of
farms led SBA to giving them size standards far below firms in other
sectors of the economy despite the fact that the markets they competed
in were national in scope.
B. Major Changes to the Size Standards Methodology
As discussed further in the Revised Methodology, SBA is proposing
to make changes to the methodology of determining size standards to
ensure the methodology aligns with statutory requirements. This section
gives an overview of the most significant changes. For further details
please see the full Revised Methodology, which is available in the
docket for this rulemaking at regulations.gov. The five most
significant changes are as follows:
1. Changing the NAICS level at which size standards are calculated
from the 6-digit NAICS code to a mix of 4- and 5-digit NAICS codes--In
the 2024 Methodology, size standards were set at the 6-digit NAICS code
which produced nearly 1,000 individual size standards once exceptions
for federal contracting were included. The Revised Methodology instead
sets size standards at a combination of 4- and 5-digit NAICS code which
simplifies these to 338 individual size standards. This will decrease
confusion surrounding whether a small business fits into a specific 6-
digit category bearing several similar industries. Along with the
change in aggregation, SBA has also proposed to remove all size
standard exceptions.
2. Converting numerous industry groups and industries from receipt-
based size standards to an employee-based one--In the 2024 Methodology,
it was SBA's policy to use receipt-based size standards in industries
which were neither manufacturing nor services unless the industry
maintained certain conditions such as high capital intensity or low
operational costs. The proposed methodology takes the opposite approach
and defaults to employment-based size standards for all industry groups
or industries where SBA has discretion. This will reduce the number of
firms fluctuating between small and other than small business status,
due to business volatility, inflation, and productivity growth.
3. Updated factors determining small business size standards--In
the 2024 Methodology, the SBA used seven factors for calculating size
standards: simple average firm size, weighted average firm size,
average assets per firm, national four firm concentration ratio,
national Gini coefficient, and two disparity measures of federal
contracts for any industries which received at least $20 million in
federal contracts. By contrast, the proposed Revised Methodology uses
three: national industry size, number of geographic markets, and an
adjustment for net imports, which are combined together into an average
market size measure. The changes in factors is intended to more closely
align the size standard's methodology with the Small Business Act's
statutory language requiring a small business concern to be one which
is ``not dominant in its field of operations''. SBA believes the best
reading of the language is that a field of operations should include
both the goods or services business provide as well as a geographic
area in which they compete. This is similar to how the Federal Trade
Administration and
[[Page 53743]]
Department of Justice define a market in their Horizontal Merger
Guidelines.\4\
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\4\ 2023 Merger Guidelines--Antitrust Division, Department of
Justice.
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4. Updated formula for calculating size standards--In the 2024
Methodology, SBA calculated a size standard for each of the seven
factors separately by comparing the industry to other industries in a
comparison group and then averaging the results of the seven together.
SBA also imposed a minimum and maximum size standard imposing a narrow
range for size standards even when the factors suggested a size
standard outside the range--most often at the high end. In the Revised
Methodology, the average market size for an industry is converted into
a size standard by using a single function. The Revised Methodology has
no explicit maximum size standard but does have a minimum size
standard. This allows size standards to vary over a larger range and,
in the case of some industries, allows for higher size standards than
the existing methodology.
5. Added in a productivity adjustment for monetary based size
standards--In the 2024 methodology, SBA adjusts monetary based size
standards for inflation. In the proposed methodology, SBA continues to
adjust for inflation but adds in an adjustment for general productivity
increases in the U.S. economy as well. The productivity adjustment
incorporates technological improvements and growing worker skills which
increase business costs and receipts faster than inflation alone. This
change allows firms with monetary based size standards to be placed on
an equal footing to those with employment based size standards, which
have an implicit productivity adjustment built in.
C. Changes to Methodology
SBA has long weighed prevailing economic conditions in deciding
whether to revise size standards. Following the 2007-2009 recession,
SBA declined in the first five-year review under the Jobs Act to lower
any size standard, even where the then-current methodology supported
reductions in some industries. SBA adopted the same policy in the
second five-year review for standards retaining the same measure.
Economic conditions will continue to inform SBA's analysis as a
secondary factor.
Lowering a size standard--or retaining one that is already too
low--would cost many currently small firms, especially the most
experienced and capable, their small business status and their
eligibility for Federal assistance and small business contracts.
Given the difficult conditions small businesses faced during 2021-
2024, including high inflation and increased regulatory burdens, SBA
believes reductions would stifle the economic growth now underway. SBA
therefore proposes not to reduce any industry size standard, even in
the 45 industries where analytics may propose a decrease. Unlike prior
results, the new results generally give small businesses room to grow
while still accurately distinguishing them from larger peers. Reducing
standards would run counter to SBA's mission to aid, counsel, assist,
and protect the interests of small business concerns, preserve free
competitive enterprise, and maintain and strengthen the Nation's
economy.
Lowering the threshold for what qualifies as a small business--
whether by reducing a standard or leaving one too low--would carry
negative effects across the economy: value to the taxpayer, Government
contracting, subcontracting and supply chains, access to capital,
competition and industry consolidation, innovation and
entrepreneurship, job creation, economic growth, the defense industrial
base and national security, and the small business industrial base.
Access to capital and other benefits. Small firms without small
status lose access to SBA-backed loans and guarantees, limiting
investment in equipment, technology, and workforce development, along
with other benefits such as lower taxes and exemptions from certain
compliance and paperwork requirements. Some would slow expansion or
close.
Economic growth and jobs. Small businesses generate roughly 44
percent of U.S. GDP, two-thirds of net new jobs, and nearly half of
private sector employment. Small firms without small status--and small
firms without small status in industries where standards are already
too low--would face financial pressure, reduce hiring, or lay off
workers.
Industrial Base Resilience: Small firms excluded from small
business status would compete directly against large corporations with
far greater resources. Many would be acquired or exit, consolidating
key sectors such as manufacturing, construction, and IT, reducing
innovation and choice, and raising costs to the taxpayer. That outcome
would conflict with Executive Order 14267 (90 FR 15629, April 9, 2025),
which directs agencies to reduce anticompetitive regulatory barriers.
Small firms without small status would lose access to set-aside
contracts, shrinking the pool of qualified suppliers in contract-
dependent industries such as defense, construction and IT. Fewer
contractors capable of high-value or technically demanding work means
delays, lower quality, and higher prices. Firms would also lose
subcontracting opportunities, as primes favor subcontractors that still
count toward their small business goals.
Small businesses comprise 73 percent of companies in the U.S.
defense industrial base (Department of War), even while DoW small
business vendor count decreased 49 percent between 2010 and 2024.
Lowering standards or retaining one that is already too low would
disqualify additional firms, narrow DoW's options for specialized
capabilities, and further erode the flexibility and resilience
essential to the defense and broader industrial base.
At a time of resurgent American manufacturing, preventing small
businesses from obtaining small status would undercut American
manufacturing, national security, and industrial base resilience. For
these reasons, SBA proposes not to reduce any size standard where
analytical results suggest a reduction. The 45 affected industries,
which will retain their current size standards, are listed in the table
below.
------------------------------------------------------------------------
Recommended size Proposed size
NAICS Description standard standard
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2122...... Metal Ore Mining...... 1,450 employees.. 1,500 employees.
2211...... Electric Power 700 employees.... 1,150 employees.
Generation,
Transmission and
Distribution.
2212...... Natural Gas 500 employees.... 1,150 employees.
Distribution.
31131..... Sugar Manufacturing... 700 employees.... 1,150 employees.
31134..... Nonchocolate 900 employees.... 1,000 employees.
Confectionery
Manufacturing.
31181..... Bread and Bakery 900 employees.... 1,000 employees.
Product Manufacturing.
31182..... Cookie, Cracker, and 1,000 employees.. 1,250 employees.
Pasta Manufacturing.
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3119...... Other Food 1,050 employees.. 1,250 employees.
Manufacturing.
3121...... Beverage Manufacturing 1,150 employees.. 1,400 employees.
3122...... Tobacco Manufacturing. 1,150 employees.. 1,500 employees.
3149...... Other Textile Product 600 employees.... 1,000 employees.
Mills.
3212...... Veneer, Plywood, and 1,100 employees.. 1,250 employees.
Engineered Wood
Product Manufacturing.
3241...... Petroleum and Coal 1,250 employees.. 1,500 employees.
Products
Manufacturing.
3253...... Pesticide, Fertilizer, 600 employees.... 1,350 employees.
and Other
Agricultural Chemical
Manufacturing.
3256...... Soap, Cleaning 1,050 employees.. 1,250 employees.
Compound, and Toilet
Preparation
Manufacturing.
3259...... Other Chemical Product 950 employees.... 1,500 employees.
and Preparation
Manufacturing.
3271...... Clay Product and 850 employees.... 1,000 employees.
Refractory
Manufacturing.
3272...... Glass and Glass 1,050 employees.. 1,250 employees.
Product Manufacturing.
32731..... Cement Manufacturing.. 750 employees.... 1,000 employees.
32733..... Concrete Pipe, Brick, 500 employees.... 750 employees.
and Block
Manufacturing.
32741..... Lime Manufacturing.... 650 employees.... 1,050 employees.
32742..... Gypsum Product 700 employees.... 1,500 employees.
Manufacturing.
3279...... Other Nonmetallic 900 employees.... 1,500 employees.
Mineral Product
Manufacturing.
3324...... Boiler, Tank, and 1,300 employees.. 1,500 employees.
Shipping Container
Manufacturing.
3329...... Other Fabricated Metal 1,250 employees.. 1,500 employees.
Product Manufacturing.
3332...... Industrial Machinery 1,250 employees.. 1,500 employees.
Manufacturing.
3333...... Commercial and Service 850 employees.... 1,000 employees.
Industry Machinery
Manufacturing.
3334...... Ventilation, Heating, 1,050 employees.. 1,250 employees.
Air-Conditioning, and
Commercial
Refrigeration
Equipment
Manufacturing.
3336...... Engine, Turbine, and 1,450 employees.. 1,500 employees.
Power Transmission
Equipment
Manufacturing.
3346...... Manufacturing and 750 employees.... 1,250 employees.
Reproducing Magnetic
and Optical Media.
3351...... Electric Lighting 1,100 employees.. 1,250 employees.
Equipment
Manufacturing.
3352...... Household Appliance 1,450 employees.. 1,500 employees.
Manufacturing.
3359...... Other Electrical 1,200 employees.. 1,250 employees.
Equipment and
Component
Manufacturing.
3365...... Railroad Rolling Stock 1,200 employees.. 1,500 employees.
Manufacturing.
3369...... Other Transportation 1,150 employees.. 1,500 employees.
Equipment
Manufacturing.
33791..... Mattress Manufacturing 800 employees.... 1,000 employees.
33792..... Blind and Shade 850 employees.... 1,000 employees.
Manufacturing.
4812...... Nonscheduled Air 1,300 employees.. 1,500 employees.
Transportation.
4831...... Deep Sea, Coastal, and 1,400 employees.. 1,500 employees.
Great Lakes Water
Transportation.
4861...... Pipeline 1,050 employees.. 1,500 employees.
Transportation of
Crude Oil.
4869...... Other Pipeline 1,000 employees.. 1,500 employees.
Transportation.
4921...... Couriers and Express 1,100 employees.. 1,500 employees.
Delivery Services.
5171...... Wired and Wireless 750 employees.... 1,500 employees.
Telecommunications
(except Satellite).
5621...... Waste Collection...... $38 million in $47 million in
receipts. receipts.
8123...... Drycleaning and $35 million in $47 million in
Laundry Services. receipts. receipts.
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The following table describes the current size standards and
presents the proposed size standard for each 6-digit NAICS code to
facilitate easy comparisons for businesses. The table also provides
estimates of the small business count under the current standard and
the new standard as well as the difference between them. Empty cells
indicate that no estimate is available for the current standard, the
proposed standard, or both.\5\ To facilitate comparison between the
current and proposed standard, if either count is missing, both are
excluded from the totals and from the difference calculations.
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\5\ For farms (NAICS subsectors 111 and 112), the Census of
Agriculture does not report data by firm size so the number of small
businesses under the current or proposed standard cannot be
estimated. Using the breakdown of farm establishments by receipts
size there may be as many as 38,000 new small farm businesses. This
number assumes all establishments are separate farms and that all
farms will qualify as small businesses. For Credit Card Issuing
(NAICS 522210), because the current size standard is in assets the
Statistics of U.S. Businesses (SUSB) cannot be used to estimate
number of firms. Two recently split off NAICS codes for Compost
Manufacturing (NAICS 325315) and Agents for Wireless
Telecommunications Services (NAICS 517122) also cannot be
calculated, but all small businesses in these industries are
included in the counts of Fertilizer (Mixing Only) Manufacturing
(NAICS 325314) and Wireless Telecommunications Carriers (except
Satellite) (NAICS 517112) respectively. One industry Corporate,
Subsidiary, and Regional Managing Offices (NAICS 551114) did not
currently have a size standard. Lastly, Insurance and Employee
Benefit Funds (NAICS 5251), and Trusts, Estates, and Agency Accounts
(NAICS 525920) are not included in SUSB so neither the number of
small businesses under the current or proposed standards can be
estimated.
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BILLING CODE 8026-09-C
C. Compliance With Executive Orders 12866, 12988, 13132, 13563 and
14192, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the
Paperwork Reduction Act (44 U.S.C. Ch. 35)
Executive Order 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
OMB has determined that this rule is not a significant regulatory
action. The rule will not impact the total number of federal contracts
and is expected to have a minimal impact on SBA's lending programs,
including 7(a) and 504 loans, which are subject to statutory caps. As a
result, any impact on the economy is expected to be de minimis. In the
next section, SBA provides a Cost-Benefit Analysis of this proposed
rule, including: (1) a statement of the need for the proposed action,
(2) an evaluation of the benefits and costs--both quantitative and
qualitative--of the proposed action; and (3) an examination of
alternative approaches. SBA invites comments on Cost-Benefit Analysis.
Cost-Benefit Analysis
1. Need for This Regulatory Action
Under the Small Business Act (15 U.S.C. 632(a)), SBA's
Administrator is responsible for establishing small business size
definitions (or ``size standards'') and ensuring that such definitions
vary from industry to industry to reflect differences among industries.
The Jobs Act requires SBA to review every five years all size standards
and make necessary adjustments to reflect current market conditions.
This proposed rule is part of the third five-year review of size
standards in accordance with the Jobs Act. The first five-year review
of size standards was completed in early 2016 and the second five-year
review in early 2023.
2. Baseline and Proposed Changes
In Circular A-4 (September 17, 2003), OMB directs agencies to
establish an appropriate baseline to evaluate any benefits, costs, or
transfer impacts of regulatory actions and alternative approaches
considered. The baseline should represent the agency's best assessment
of what the world would look like absent the regulatory action.
For purposes of this regulatory action, the baseline is maintaining
the ``status quo,'' i.e., making no changes to the current size
standards. Currently, there are 102 different size standards levels,
covering 978 NAICS industries and 18 subindustries (commonly known as
``exceptions'' in SBA's table of size standards). Of these size levels,
73 are based on average annual receipts covering 496 industries and 13
subindustries (``exceptions''), 27 are based on average number of
employees covering 477 industries and five subindustries
(``exceptions''), one is based on refining capacity and number of
employees covering one industry, and one is based on average assets
covering four industries.
The proposed rule applies the Revised Methodology and moves from 6-
digit NAICS industries to a combination of 4-digit NAICS industry
groups and 5-digit NAICS industries and includes 338 size standards
across all areas of the economy in which small businesses may compete
(NAICS 4911, 5211, 8141, and all of sector 92 are excluded). The
proposed rule also converts many receipt-based industries to employee-
based industries, updates the factors used to calculate size standards,
updates the process for translating those factors into size standards,
and adds an adjustment for productivity growth to receipt based
standards. Further details on the proposed changes are provided in the
Proposed Size Standards Methodology section. The following table
provides a short comparison of the proposed changes to the baseline.
------------------------------------------------------------------------
Baseline Proposed changes
------------------------------------------------------------------------
Separate rules establishing receipt- One rule establishing all size
based & employee-based size standards. standards.
978 size standards at the 6-digit NAICS 276 size standards at the 4-
level. digit NAICS level and 62 at
the 5-digit NAICS level.
496 size standards based on annual 129 size standards based on
revenue. annual revenue (as required by
statute).
478 size standards based on employee 208 size standards based on
level. employee level.
18 subindustries (exceptions).......... No exceptions.
Maximum for revenue-based: $47 million; No maximum.
Maximum for employee-based: 1,500.
Total number of small business firms: Total number of small business
6,344,967. firms: 6,459,508.
------------------------------------------------------------------------
3. Benefits of Proposed Size Standards
The proposed simplified size standard benefits small businesses,
banks including loans officers, federal government agencies including
procurement officers, and the public in general.
Impact on Small Businesses
The proposed simplified size standard is easier to navigate and
reduces time taken for review and determination of
[[Page 53770]]
small business standards for small businesses. In addition, the
proposed rule changes which businesses are classified as small. The
changes to the size standards would result in a net increase of about
114,541 businesses classified as small. Classification as small confers
economic advantages in three primary domains: preferential access to
federal government contracts through set-aside programs, access to
subsidized and guaranteed financing, and protection from regulatory
burdens through the Regulatory Flexibility Act (RFA).
Simplified size standard: In the current version of SBA size
standards, there are nearly 1,000 unique size standards, with numerous
alternative size standards for different special cases. For example,
there is currently a different size standard for Ship Building (1,300
employees) than there is for Boat Building (1,000 employees). While
Ships are larger than boats and are more likely to be used for
commercial purposes, there is gray area where a firm could be uncertain
which standard applied to them. By moving up to the 4-digit level this
uncertainty is resolved as both NAICS 6-digit industries are combined
into a single 4-digit one for purposes of size standards.
Increases potential for participating in government contracting
programs: The federal government is the world's largest buyer of goods
and services, spending over $883 billion in federal contracts in Fiscal
Year 2025 according to www.usapending,gov. Statute requires the federal
government to set a goal for small business participation in the total
value of prime contracts at no less than 23 percent. In FY 2024, the
federal government exceeded this goal, awarding a record $179 billion
in prime contract dollars to small businesses.\6\
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\6\ FY24 Scorecard Factsheets--Small Business.
---------------------------------------------------------------------------
To help meet these goals, contracting officers at these agencies
can use restricted competition to all small businesses, Service-
Disabled Veteran-Owned Small Businesses (SDVOSB), Women-Owned Small
Businesses (WOSB), Historically Underutilized Business Zones (HUBZone),
or 8(a) Business Development (BD) firms. Sole-source authorities exist
in SDVOSB, WOSB, HUBZone, and 8(a) BD programs, although their usage
differs by each program. In addition, the government can sole-source
outside of these programs, including to small businesses, when the
requirements are met to warrant a sole-source.
Both SBA's regulations and the Revolutionary Federal Acquisition
Regulation (FAR) Overhaul (RFO) require consideration for small
business preferences, set-asides, and SBA certification programs,
including the 8(a) BD Program, the HUBZone Program, WOSB Program, the
Economically Disadvantaged Women-Owned Small Businesses (EDWOSB)
Program, and the SDVOSB Program.).\7\ Because of the preferences small
businesses receive in federal contracting, newly classified small
businesses may seek opportunities to participate in federal contracting
where they may not have done so before.
---------------------------------------------------------------------------
\7\ Scorecard details [verbar] U.S. Small Business
Administration.
---------------------------------------------------------------------------
Increases potential for participation in SBA business loan
programs: Small business determination also allows firms to participate
in the SBA business loan programs including disaster loans.
For FY 2026 (current as of 7/6/26), for instance, $23
billion was approved for 43,089 loans in the 7(a) program and $5.5
billion to 4,710 firms for the 504 program.\8\ For the entire FY 2025,
$37 billion was approved in 7(a) loans and $7 billion in 504 loans.\9\
Newly qualified businesses as well as businesses that retain
eligibility will be able to participate in these and other SBA loan
programs including the newly introduced 7(a) Working Capital Pilot
Program that has delivered more than $150 million in new lending since
its inception.\10\
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\8\ Workbook: 7(a) & 504 Summary Report.
\9\ Trump SBA Delivers Record Capital to Small Businesses in
FY25 [verbar] U.S. Small Business Administration.
\10\ SBA's Working Capital Pilot Program Delivers $150 Million
to Support U.S. Manufacturing [verbar] U.S. Small Business
Administration.
---------------------------------------------------------------------------
Newly qualified small businesses will also benefit from
Economic Injury Disaster Loans (EIDLs). Small businesses, small
agricultural cooperatives, and most private nonprofit organizations
located in a declared disaster area, and which have suffered
substantial economic injury, are eligible. In FY 2022, the last year
for which data is available, $131 million in EIDL loans were
approved.\11\ Since the benefit provided through these loans programs
is contingent on small businesses applying for loans following future
disasters, SBA cannot make a meaningful estimate of the impact of the
proposed rule.
---------------------------------------------------------------------------
\11\ SBA Disaster Loan Data [verbar] U.S. Small Business
Administration.
---------------------------------------------------------------------------
Greater flexibility and lower compliance requirements for small
businesses: Besides contracting and financial assistance discussed
above, small businesses also benefit through reduced fees and fewer
compliance requirements that are available to small businesses through
the Federal government. The Regulatory Flexibility Act requires
agencies to give special consideration to small businesses in the
regulatory process. Regulating agencies often take measures to decrease
the burden of regulations on small businesses, including delaying
compliance deadlines or even exempting small businesses altogether, and
a small business determination under the size standard rule causes
agencies to consider applying these exemptions or flexibilities.
For instance, in May 2026, the Consumer Financial Protection Bureau
(CFPB) published the Small Business Lending Under the Equal Credit
Opportunity Act (Regulation B) Rule governing collection and reporting
of data regarding applications for credit by small businesses. This
final rule amended coverage of certain credit transactions and
financial institutions, the small business definition, and the
compliance date. According to an Office of Advocacy Comment Letter,\12\
the change from the 2023 Rule reduces compliance costs estimated at
$58,400-$95,200 annually for approximately 1,500 smaller financial
institutions, while still capturing more than 90% of small business
lending by volume.
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\12\ Comment Letter--Small Business Lending Under the Equal
Credit Opportunity Act (Regulation B), Docket No. CFPB-2025-0040.
---------------------------------------------------------------------------
In some cases, small businesses would have maintained access to the
benefits described above through limiting their own growth. The new
methods for determining size standards will allow small businesses to
grow further before exceeding the size standards, enabling them to
continue to benefit from the small business programs without
sacrificing growth.
Impact on Federal Government (Including Contracting Officers)
Increases Competition: With more businesses qualifying as small
under the proposed increases to size standards, Federal agencies will
have a larger pool of small businesses from which to draw for their
small business procurement programs. The current, slow to adjust size-
standards often leave small businesses with a decision to forego new
growth opportunities in order to remain within the limited size
threshold.\13\ To encourage economic growth and address similar
concerns raised by small businesses, the SBA proposes to modernize the
size-standards to foster an environment
[[Page 53771]]
where small firms are encouraged to propose innovative solutions rather
than forgo those growth opportunities in order to remain small in the
currently restrictive, slow to move standards. By bringing such
flexibility to small contractors, and the resulting increase in small
firms, the federal government will have more capable firms to consider,
and more competitive offers, when purchasing goods and services.
---------------------------------------------------------------------------
\13\ Michael Ramos Testimony House Small Business Committee
Hearing 9.10.2025; Jay Lambke Testimony House Small Business
Committee Hearing 2.6.24.
---------------------------------------------------------------------------
A Naval Postgraduate School Acquisition Research Program study
summarizes this issue, stating ``One of the other key policy objectives
of the Small Business Act is to promote small business in order to
foster economic growth. Yet as suppliers grow towards their NAICS
thresholds, they encounter a ``benefit cliff'' that disincentivizes
growth, counter to this goal.'' \14\ Additionally, the study suggests
that restricted competition contributes to weak competitive
procurements, limiting the range of cost, quality, and delivery
options. These constraints result in fewer choices to balance
purchasing goals, such as cost and best-value to the government.
---------------------------------------------------------------------------
\14\ Examining the Effects of Set Aside Policies on Competition
and Growth for Small and Mid-Sized Suppliers.
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Small businesses voiced their concerns about the prior, restrictive
size standards in a hearing held by Chairman Roger Williams (R-TX) in
the House Committee on Small Business in the 118th Congress titled
``Under the Microscope: Reviewing the SBA's Small Business Size
Standards.'' \15\ The hearing examined the previous size standards
methodology, and as Chairman Williams' press release stated, ``Today's
hearing shed a light on how small businesses often get boxed out of the
federal procurement marketplace. The federal government is the largest
customer in our nation, so ensuring accurate size standards is
incredibly important so more small firms can compete for contracts.
Antiquated standards leave small businesses behind . . .'' \16\
Additionally, as Ranking Member Velazquez (D-NY) stated, ``Right-sizing
the size standards is critical to ensure fairness, promote competition
and encourage small businesses to enter and remain in the industrial
base.''
---------------------------------------------------------------------------
\15\ ``Under the Microscope: Reviewing the SBA's Small Business
Size Standards''. (2026, June 24). https://www.congress.gov/event/118th-congress/house-event/116800.
\16\ House Committee on Small Business, ``Committee on Small
Business Holds Hearing Examining SBA Size Standards [verbar] House
Committee on Small Business,'' February 6, 2024, press release,
https://smallbusiness.house.gov/news/documentsingle.aspx?DocumentID=405872.
---------------------------------------------------------------------------
Agency Goaling. The proposed size standard increases the total
number of eligible small businesses from 6,344,967 firms to 6,459,508
firms, an increase of close to 2%. As discussed above, the federal
government has an annual small business federal contracting goal.
Businesses with a new determination of `small business' status
currently competing for government contracts will now be able to
contribute towards these goals. Having small business status will
enable these businesses to compete for contracts restricted to small
businesses, while agencies will be able to count the contracts awarded
to newly-small businesses toward their small business goals (regardless
of whether such procurements were restricted to small businesses).
SBA estimates that nearly 37,002 unique firms with FY 2025
contracts will be newly eligible small businesses. Together these firms
accounted for roughly 105,655 contracts in FY 2025 for a total of more
than $71 billion.
The following table provides the top 20 industry groups by 6-digit
NAICS with existing contracts in FY 2025 which will count toward small
business goals under the proposed size standards owing to the small
business determination of the contracting businesses under the proposed
size standards. For instance, in Engineering Services (541330) 5,314
firms with current contracts will now be eligible to compete for small
business restricted set asides and contracts awarded to these firms
will count toward the small business contracting goals for agencies. In
Other Computer Related Services (541519) and Custom Computer
Programming Services (541511), 2,247 firms and 2,171 firms respectively
will be eligible for small business goals.
------------------------------------------------------------------------
Small
businesses
NAICS Description under proposed
standards
------------------------------------------------------------------------
541330................ Engineering Services............ 5,314
541519................ Other Computer Related Services. 2,247
541511................ Custom Computer Programming 2,171
Services.
541611................ Administrative Management and 1,818
General Management Consulting
Services.
541512................ Computer Systems Design Services 1,663
541990................ All Other Professional, 1,427
Scientific, and Technical
Services.
811310................ Commercial and Industrial 1,358
Machinery and Equipment (except
Automotive and Electronic)
Repair and Maintenance.
721110................ Hotels (except Casino Hotels) 1,263
and Motels.
811210................ Electronic and Precision 1,214
Equipment Repair and
Maintenance.
623110................ Nursing Care Facilities (Skilled 1,178
Nursing Facilities).
115310................ Support Activities for Forestry. 1,111
518210................ Computing Infrastructure 1,105
Providers, Data Processing, Web
Hosting, and Related Services.
541930................ Translation and Interpretation 1,083
Services.
611430................ Professional and Management 959
Development Training.
541199................ All Other Legal Services........ 870
541690................ Other Scientific and Technical 719
Consulting Services.
561720................ Research and Development in the 672
Social Sciences and Humanities.
541620................ Environmental Consulting 596
Services.
541310................ Architectural Services.......... 530
611310................ Colleges, Universities, and 507
Professional Schools.
------------------------------------------------------------------------
GAO found that more competition leads to better performance and
price.\17\ This indicates potential cost savings for agencies as non-
sole source competitive contracts increase and agencies continue to
prioritize small businesses
[[Page 53772]]
in the federal procurement space, as an increased pool of small
businesses will likely have a favorable effect on the use of procuring
with small business by agencies. Having an increased pool of small
businesses competing for contracts restricted to small business could
also decrease prices by providing agencies with access to contractors
with lower costs, improved offerings and that decrease in price would
be a benefit to agencies and provide the best value to the taxpayers
who ultimately fund every contract.
---------------------------------------------------------------------------
\17\ Federal Contracting [verbar] U.S. GAO.
---------------------------------------------------------------------------
Simplifies administration: This rule will decrease the
administrative burden on procurement and contracting officers. The rule
simplifies the system used to classify small businesses. The rule also
combines the receipt-based and employee-based size standards previously
published by SBA in two separate rules into a single rule, reducing the
burden of understanding the size standards. Savings from publishing the
new size standards in a single simplified rule could be meaningful. The
current rules account for more than 150 pages in the Federal Register.
Assuming 1,000 words per page (a Federal Register page is roughly two
dense newspaper columns with small serif font and narrow margins, so it
carries more text than a standard 8.5x11 manuscript page, estimated
900-1200 words per page), that is 150,000 words. The proposed rule is
expected to reduce this by more than half as it combines the two rules
(receipt-based and employee-based) into one and simplifies the system
from 6-digit NAICS to a combination of 4-digit and 5-digit NAICS.
Suppose this translates to 70 pages or 70,000 words: At 200 words per
minute, that is 5 hours 50 minutes of reading time saved. To
acknowledge both the capital and labor requirements, SBA applies an
average dollar cost to an hour of $37.64, hourly average wage for
nonfarm employees in June of 2026,\18\ resulting in $219.57 in savings
per reading. The federal government employes about 37,600 contracting
officers,\19\ so the value of the reduction in reading time could be
substantial.
---------------------------------------------------------------------------
\18\ Table B-3. Average hourly and weekly earnings of all
employees on private nonfarm payrolls by industry sector, seasonally
adjusted--2026 M06 Results.
\19\ Workforce Size & Composition.
---------------------------------------------------------------------------
Impact on Banks and Loan Officers
As discussed in previous sections, the proposed size standard is
shorter and easier to apply and will benefit not only small businesses
and federal government but also banks and loan officers. For instance,
since 2020, 1,877 FDIC monitored banks, 314 NCUA monitored Credit
Unions as well as numerous smaller financial institutions and community
banks provided SBA guaranteed 7(a) loans. Responsible loan officers at
these institutions will save time in the review and approval of 7(a)
loans. This is because the proposed size standard introduces a
simplified process for assessing firm size eligibility.
4. Costs of Proposed Size Standards
Impact on Small Businesses
All businesses interested in doing business with Federal government
must register in SAM and update their SAM profiles annually, regardless
of their size status. Businesses that are newly classified as small may
choose to incur these costs in pursuit of federal contracts. Besides
having to register in SAM to be able to participate in Federal
contracting and update the SAM profile annually, small businesses incur
no direct costs to gain or retain their small business status because
of increases to size standards.
There is, however, a potential impact on small businesses' ability
to access SBA loans and government contracts. In addition, there is the
possibility of increased administrative costs for the government. The
costs caused by a loss in small business status invert the benefits
discussed in the benefits section, including losses in economic
efficiency caused by decreases in competition for federal contracts.
However, the number of businesses gaining small business status using
the proposed methodology is much larger than the number of businesses
that could potentially lose small business status. SBA estimates that
fewer than 200 businesses would lose small status under the proposed
methodology, while about 114,236 would gain small status. Furthermore,
SBA is proposing to not reduce any size standards which are keeping the
same size standard measure. As such SBA estimates fewer than 5 small
businesses in Direct Property and Casualty Insurance Carriers (NAICS
524126) will lose small business status due to the switch from
employment to receipt-based size standards. Further discussion about
impacts on small businesses can be found in the Regulatory Flexibility
Act (RFA) section.
Federal contracting officers are required to ensure that all
contracts entered into by the Federal government are provided at a fair
market price. Increasing the number of eligible small businesses to
compete for Federal contracts increases the likelihood that the
government procures services and products from small businesses at a
fair market value. The increased competition may, however, result in
reduced profits as more small businesses are competing for federal
contracts. These issues are discussed in more detail in the RFA.
In the single industry that may see a decrease in the number of
small business due to changing, some businesses may no longer be
eligible for SBA loan guarantees (7(a), 504) or EIDL loans. While it is
not possible to accurately predict the behavior of businesses, a review
of the data between 2020-2026 reveals that in NAICS 524126 (Direct
Property and Casualty Insurance Carriers), all businesses with approved
7(a) loans are substantially below the size standard and will remain
eligible for SBA loans under the proposed size standards.
Among those newly defined small businesses seeking SBA loans, there
could be some additional costs associated with verification of their
small business status. However, many of SBA's loan programs are subject
to a statutory cap and thus increased new businesses would be unlikely
to increase administrative costs, and information pertaining to revenue
and employment is generally required in the loan application process
notwithstanding size standard. Therefore, SBA believes that any added
administrative costs will be small.
Impact on Government
There is a potential for increased administrative costs for the
government in implementing the proposed size standards. To the extent
that the newly qualified small businesses could become active in
Federal procurement, the proposed increases to size standards, if
adopted, may entail some additional administrative costs to the
government because of more businesses qualifying as small for Federal
small business programs. For example, there may be more firms seeking
SBA loans, more firms potentially eligible for certification such as
SDVOS, WOSB, EDWOSB, 8(a), HUBZone, or SBA Mentor-Prot[eacute]g[eacute]
Program. A preliminary analysis of the FPDS database, however, reveals
that most of the small businesses participating in the certification
and loan programs are significantly below the size standard threshold.
While it is not possible for SBA to accurately predict which newly
classified firms would be eligible for certification or predict the
behavior of newly eligible small businesses, the evidence from existing
program participation data thus suggests that the newly eligible small
businesses close to the size standard
[[Page 53773]]
threshold in revenue or employment scale are not likely to apply for
certification or loan guarantees in large numbers. Hence, SBA expects
any rise in administrative costs to be small.
The SBA's historical data on size protests reveals that the number
of size protests decreased following the increases size standards which
resulted in more eligible small businesses. This was part of the first
and second five-year reviews of size standards under the Jobs Act.
Specifically, on an annual basis, the number of size protests fell from
about 500-600 during 2011-2016 to an average of about 300 during 2020-
2024.\20\
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\20\ See for instance, Sarah K. Carpenter, ``Key Takeaways from
the GAO's Bid Protest Report to Congress for Fiscal Year 2024,''
Smith Currie Oles LLP, December 31, 2024, https://www.smithcurrie.com/publications/common-sense-contract-law/key-takeaways-from-the-gaos-bid-protest-report-to-congress-for-fiscal-year-2024/.
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5. Transfer Impact of Size Standards
The proposed increases to size standards, if adopted, may result in
some redistribution of Federal contracts between the newly qualified
small businesses and other-than-small businesses and between the newly
qualified small businesses and small businesses under the current
standards. As discussed in the benefit and cost sections, some of the
resulting changes in prices and profits would be the result of gains in
economic efficiency. However, some other changes would be transfers
between the federal government and small businesses and among small
businesses.
With a close to 2% increase in number of firms qualifying as small
businesses, there is likely to be an increase in competition for small
business government contracts which may impact firms qualifying under
the current size standards by reducing their likelihood of winning
government contracts if they are not the best solution for the
government. Increased competition is likely to have the greatest impact
on businesses most similar in size to the businesses that would be
newly classified as small, since these are more likely to be competing
for the same contracts. In other words, the smallest businesses in
particular industries are likely not to be competitive for the same
contracts as the businesses closest to the current size standards,
while small businesses closest to the current size standards would
likely be competitive for the same contracts as the businesses newly
classified as small under the proposed rule. Growing small businesses
closer to the size standard are therefore likely to face the greatest
competition from the newly eligible firms under the proposed rule.
Having more eligible businesses compete for set asides may reduce some
small businesses' chances of securing a government contract, but the
number of small businesses being awarded federal contracts will not be
reduced.
Research suggests that firms that remain active in federal
contracting rely less on small business set asides over time. Girth and
Brown (2018) tracked 977 federal suppliers and their contracts between
2005-2014 to study the potential impact of small business policies on
supplier competitiveness, program participation, and growth.\21\ They
demonstrated that firms that remained in the federal market for the
decade under review had nearly twice as much contract activity in 2014
than 2005 with increasingly lower dependency on set asides. Growing
firms successfully competed with large businesses in an open market,
relying less and less on set asides. Therefore, while growing
businesses that are approaching the size standards may face higher
competition and lower profit margins from government contracts, they
will likely benefit from higher standards by being able to accept more
non set aside contracts and private market contracts without risk of
losing their small business status because of growth in revenue or
employment. For further discussion, please refer to the RFA section of
this rule.
---------------------------------------------------------------------------
\21\ Examining the Effects of Set Aside Policies on Competition
and Growth for Small and Mid-Sized Suppliers.
---------------------------------------------------------------------------
6. Alternatives to the Proposed Rule
OMB's Circular A-4 directs SBA to consider regulatory alternatives
to the proposed changes in the proposed rule. Many such alternatives
are discussed in the Revised Methodology document. At a high level,
however, SBA considered two main alternatives to the proposed rule:
Alternative One would propose retaining all size standards
for all industries. The current size standards were developed in 2022
during COVID and have not been adjusted for inflation since. This makes
the standard unreasonably low for many of the industries, including the
construction industry, which has remained largely static aside from
occasional inflationary adjustments.\22\ The proposed standard not only
addresses this issue by adjusting for inflation but also for the first
time adjusts for productivity growth, developing a size standard that
does not unfairly punish small businesses for growing productivity and
efficiency.
---------------------------------------------------------------------------
\22\ 2024 Size Standards Methodology White Paper. See pp. 8-9.
---------------------------------------------------------------------------
Alternative Two would update current size standards at the
6-digit NAICS level. This would use the current, notably flawed
methodology white paper published in 2024.\23\ This option was rejected
because the new proposed size standards more closely track the
statutorily required concept of non-dominance, adjusts for both
inflation and productivity, and provides an easier to use size standard
at the 4- or 5-digit NAICS level where appropriate. The SBA
periodically updates its size standards to account for inflation.
Including productivity growth helps ensure small businesses with
receipts based size standards are able to maintain a more skilled
workforce and incorporate new technology into their operations without
decreasing head count. The proposed methodology also substantially
increases the number of small businesses as compared to the existing
methodology. As discussed before, while the existing methodology would
cause less disruption for small businesses currently participating in
the federal market in terms of their ability to secure contracts and
earn profits from these contracts, it would also limit their ability to
grow and continue to participate in the federal market because of the
continuing low size standards. The proposed standards would create an
estimated 114,541 newly eligible small businesses, including 37,002
businesses currently participating in the federal marketplace,\24\
which would become eligible for government contracts, SBA loans, and
more simplified compliance mechanisms.\25\
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\23\ 2024 Size Standards Methodology White Paper [verbar] U.S.
Small Business Administration.
\24\ 37 thousand unique firms with $71 billion in government
contracts for FY25 will be considered small businesses under the
proposed size standards.
\25\ This includes reduced reporting requirements and less
stringent oversight under the SBA. This is notably more flexible
than being under the jurisdiction of a financial regulator like the
Securities and Exchange Commission.
---------------------------------------------------------------------------
Executive Order 14192
This proposed rule is anticipated to be an Executive Order 14192
deregulatory action when finalized. This rulemaking will decrease
regulatory burden by simplifying SBA size standards. Cost savings
created by this rulemaking are expected to outweigh any new costs that
may arise because of this rule. See the above Cost-Benefit Analysis for
a full discussion of the costs of benefits of the rule.
Regulatory Flexibility Act
According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-
612,
[[Page 53774]]
when an agency issues a rulemaking, it must prepare a regulatory
flexibility analysis to address the impact of the rule on small
entities. This proposed rule, if adopted, may have a significant impact
on a substantial number of small businesses covered by this proposed
rule. As described above, this rule may affect small businesses seeking
Federal contracts, loans under SBA's 7(a), CDC/504, micro EIDL Loan
Programs, and assistance under other Federal small business programs.
Initial Regulatory Flexibility Analysis
1. What is the need for and objective of the rule?
The Small Business Jobs Act of 2010 requires SBA to review every
five years all size standards and make necessary adjustments to reflect
market conditions. SBA completed the first five-year review of size
standards in 2016 and the second five-year review in 2023. This rule
serves as the third five-year review of size standards under the Jobs
Act. Additional needs and objectives for the proposed rule are
discussed in the Revised Methodology.
2. What is SBA's description and estimate of the number of small
businesses to which the rule will apply?
The proposed rule applies to all small businesses and impacts
access to government contracts, SBA loans, federal programs providing
funding for small businesses, and regulatory flexibilities available to
small businesses. The proposed rule increases the total number of
eligible small businesses from 6,344,967 firms to 6,459,508 firms, an
increase in 1.8%. Of the 338 size standards produced by the
methodology, only 24 industry groups or industries result in a
reduction in number of eligible firms with the total decrease expected
to be less than 200. Additionally, SBA has chosen to deviate from the
proposed methodology to keep all size standards which continue to use
the same measure from decreasing. Because of this deviation only one
industry, Direct Property and Casualty Insurance Carriers (NAICS
524126), is expected to see a decrease of fewer than five small
businesses, as its size standard changes from 1,500 employees to $842
million in receipts. The expected net increase is 114,541 firms.
3. What is the projected reporting, record keeping and other compliance
requirements of the rule?
The proposed size standard changes impose no additional reporting
or record keeping requirements on small businesses. However, qualifying
for Federal procurement and a number of other programs requires that
businesses register in SAM and self-certify that they are small at
least once annually. Therefore, businesses opting to participate in
those programs must comply with SAM requirements. There are no costs
associated with SAM registration or certification.
Impact on SBA Loans
Most industries will see an increase in the size standard and a
corresponding increase in the number of firms eligible to apply to SBA
programs. As noted, the methodology results in a reduced size standard
for 45 industry groups or industries and a transition in size measure
in one industry which effectively lowers the size standard, though only
24 would have seen a reduction in the number of small businesses,
however SBA is proposing to adopt a policy of not reducing size
standards for all industries maintaining the same size standard
measure. As such fewer than 5 small businesses in NAICS 524126 (Direct
Property and Casualty Insurance Carriers) are expected to lose small
business status. A determination about 7(a) loan eligibility could not
be made about this industry owing to lack of available revenue data for
loan recipients. However, SBA finds it unlikely that any firm seeking
SBA loans would lose access because most firms that take SBA loans are
much smaller than the size standard threshold, as discussed earlier.
Impact on Government Contracts
The ability to compete for government contracts is one of the most
significant benefits of being a small business. Using publicly
available data from FPDS and SAM, SBA conducted a review of all small
businesses with at least one contract in FY 2025. As in the case of
loans, most certified businesses have revenue and employment well below
the size standard. For the industry where the number of small
businesses is lower under the proposed size standard than under the
current size standard, SBA was unable to identified any firms with FY
2025 contracts \26\ that would likely no longer be small businesses
under the proposed size standard.
---------------------------------------------------------------------------
\26\ This is based on self-reported data available in sam.gov.
Much of the revenue and number of employees data is outdated or
inaccurate so there is a potential of more firms being impacted.
---------------------------------------------------------------------------
Both existing and newly eligible small businesses currently active
in SAM will be able to compete in federal contracts restricted to small
business. More small firms would be size-eligible for SBA contracting
programs, however, each program has additional and unique eligibility
requirements, such as service-disabled veteran status, economic
disadvantage requirements, or firm location dependent criteria. Another
advantage is that small firms that outgrew the prior standards would
regain access to small business contracting. In fact, under the
proposed rule, about 114,541 new firms will become eligible to compete
in the federal market. 37,002 firms with more than 105,655 contracts in
FY 2025 (accounting for roughly $71 billion dollars in government
contracts) will become small businesses under the proposed size
standards.
Federal contracting officers are required to ensure that all
contracts entered into by the Federal government are provided at a fair
market price. Increasing the number of eligible small businesses to
compete for Federal contracts increases the likelihood that the
government procures services and products from small businesses at a
fair market value. The increased competition may, however, result in
reduced profits as more small businesses are competing for federal
contracts.
Increased competition is likely to have the greatest impact on
businesses that most resemble the newly classified small firms. This is
because these similar businesses are more likely to compete for the
same contracts. Growing small businesses closer to the size standard
are therefore likely to face the greatest competition from the newly
eligible firms under the proposed rule. While having more eligible
businesses compete for set asides may reduce their chances of securing
a government contract, the number of small businesses being awarded
federal contracts will not be reduced.
However, firms that remain active in the federal marketplace rely
less on small business set asides over time. Girth and Brown (2018)
tracked 977 federal suppliers and their contracts between 2005-2014 to
study the potential impact of small business policies on supplier
competitiveness, program participation, and growth. They demonstrated
that in the nearly 10 years documented in their study, though many
firms exited the federal market, the firms that remained had nearly
twice as much contract activity in 2014 than 2005. In 2005, all firms
selected for the study had set aside contracts. Of the 424 suppliers
with prime contract actions in 2014, 108 had no small business set
aside actions. Growing firms successfully competed with large
businesses in an open market, relying less and less on set asides.
Furthermore, growing businesses that are approaching the size
standards will
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benefit from the potential to grow while retaining their small business
status. Girth and Brown observed a ``benefit cliff,'' where firms
considering the transition from small to mid-sized can face a
disincentive to grow because they will enter a federal procurement
market dominated by large firms with extensive past performance. The
proposed size standard effectively pushes out this benefit cliff,
allowing businesses to grow while retaining their small business status
and the ability to compete for set asides that comes with it. This
could prove to be a significant benefit for small businesses currently
facing the risk of being sized out of the federal marketplace.
4. What are the relevant Federal rules, which may duplicate, overlap or
conflict with the rule?
Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C.
632(a)(2)(c), Federal agencies must use SBA's size standards to define
a small business, unless specifically authorized by statute to do
otherwise. In 1995, SBA published in the Federal Register a list of
statutory and regulatory size standards that identified the application
of SBA's size standards as well as other size standards used by Federal
agencies (60FR57988 (November 24, 1995)). SBA is not aware of any
Federal rules that would duplicate or conflict with establishing size
standards.
However, the Small Business Act and SBA's regulations allow Federal
agencies to develop different size standards if they believe that SBA's
size standards are not appropriate for their programs, with the
approval of SBA's Administrator (13CFR121.903). The Regulatory
Flexibility Act authorizes an agency to establish an alternative small
business definition, after consultation with the Office of Advocacy of
the U.S. Small Business Administration (5 U.S.C. 601(3)).
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
By law, SBA is required to develop numerical size standards for
establishing eligibility for Federal small business assistance
programs. In this case, the alternatives considered in the E.O. 12866
section, cited below, also apply here, as do the alternatives discussed
in the Revised Methodology:
Alternative One would propose retaining all size standards
for all industries. The current size standards were developed in 2022
during COVID and have not been adjusted for inflation since. This makes
the standard unreasonably low for many of the industries including
construction. The proposed standard not only addresses this issue by
adjusting for inflation but also for the first time adjusts for
productivity growth, developing a size standard that does not unfairly
punish small businesses for growing productivity and efficiency.
Alternative Two would update current size standards at the
6-digit NAICS level using existing methodology white paper published in
2024. This option was rejected because the new proposed size standards
more closely track the statutorily required concept of non-dominance,
adjust for both inflation and productivity, and provide an easier to
use size standard at the 4-digit level where appropriate. The Revised
Methodology also substantially increases the number of small businesses
as compared to the existing methodology. As discussed before, the
existing methodology would limit small businesses' ability to grow and
continue to participate in the federal market because of the continuing
low size standards. The proposed standards would create about 114,541
newly eligible small businesses including 37,002 with existing
government contracts in FY 2025 that become eligible for government
contracts, SBA loans and increased regulatory flexibility and decided
to select the proposed method.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
proposed rule will not have substantial, direct effects on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Therefore, SBA has determined that this proposed
rule has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this proposed rule will not impose any new
reporting or record keeping requirements.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Authority delegations
(government agencies), Government procurement, Government property,
Grant programs--business, Individuals with disabilities,
Intergovernmental relations, Investigations, Investment companies, Loan
programs--business, Reporting and recordkeeping requirements, Small
businesses.
For the reasons set forth in the preamble, SBA proposes to amend 13
CFR part 121 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and
694a(9).
0
2. In Sec. 121.201, revise the table ``Small Business Size Standards
by NAICS Industry'' to read as follows:
Sec. 121.201 What size standards has SBA identified by North
American Industry Classification System codes?
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Kelly Loeffler,
Administrator.
[FR Doc. 2026-17042 Filed 8-19-26; 8:45 am]
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